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Nothing has been easy so far. . .

December 27, 2009

Donald H. Taylor, Jr.

DURHAM -- The health reform bills passed by the House and the Senate are very similar. Both expand insurance coverage via a mixture of Medicaid expansions and private insurance markets, and both provide new consumer protections such as banning the use of pre-existing conditions to deny coverage.

Subsidies are available for those making less than $88,000 per year to help them buy insurance. In 10 years, more than 30 million people will have insurance who would otherwise be uninsured, and the CBO says both bills reduce the deficit over this period. This general outline is unchanged since summer.

However, there are two huge stumbling blocks to the president's signing a bill in the New Year: abortion and taxes.

The next step is a conference committee in which members of the House and Senate negotiate a compromise between the bills that must then be passed by both houses of Congress and signed by the president to become law.

I don't know that there is a lot to say substantively about abortion. The compromise that secured Nebraska Democratic Sen. Ben Nelson's vote was agreed to publicly by pro-choice senators such as Barbara Boxer, a California Democrat. The compromise allows states to prohibit abortion coverage in the insurance exchanges and requires any exchange plan covering abortion to collect separate checks from enrollees to finance this portion of the policy. Pro-life and pro-choice groups attacked the compromise.

Of all the columns I have written on reform, the one on abortion (Nov. 13) got the most vituperative e-mail response. Some said what I wrote made me complicit in the killing of babies, while others said I wanted to roll back a woman's right to choose. These responses were generated by the same column.

Abortion is the most intractable issue of our time, and a political compromise will be reached that secures 218 votes in the House and 60 in the Senate on this issue or reform will be dead. There is not much else to say.

Both bills reduce the deficit because the cost of coverage expansions are offset by spending cuts and tax increases. Both bills include similar cuts in planned Medicare spending but differ substantially in the type of taxes used to offset spending.

The House bill includes an income tax increase of 5.4 percent on family incomes over $1 million a year ($500,000 individual), which generates $461 billion over the first 10 years. In the Senate, there is no income tax increase, but a series of other taxes: on high-cost health insurance plans, which raises $149 billion; $101 billion raised via taxes on health insurers and other industries such as medical devices; and $87 billion from an increase in Medicare payroll taxes (from 1.45 percent to 2.35 percent) on wages above $250,000.

The real debate is between the income tax increase and the tax on high-cost health insurance plans. Numerous senators have said they will not vote for an income tax increase, while the tax on high-cost insurance plans was not really considered by the House, in part due to opposition from organized labor.

On policy terms, using an income tax increase to pay for insurance expansions is a bad idea because it does nothing to slow cost inflation, and wages have been rising slower than premiums, making it an inadequate long-term financing source.

Most health policy analysts think the tax on high-cost insurance plans is the aspect of the Senate bill that is most likely to slow the rate of cost inflation. Persons with expensive policies will choose less generous ones when their entire premium no longer enjoys a tax preference. More policies will be exposed to the tax if health care costs continue to rise much faster than inflation, providing a self-correcting mechanism to address cost inflation in health care. This is a major reason that CBO says the Senate bill continues to modestly reduce the deficit in the second decade, while the House bill does not.

It is a major step to have such similar bills pass both houses. But the last few steps may be the hardest.

Donald H. Taylor Jr. is an assistant professor of public policy. His blog www.donaldhtaylorjr.blogspot.com is available for discussion of this article and health care reform in general. This is part of a series of articles by Donald Taylor exploring aspects of the health care reform issue originally published in the News & Observer.